Frequently Asked Questions About How To Price Your Home To Sell
What are the criteria that determine a property’s value?
You’ve probably heard the real estate maxim: Location, Location, Location. That’s because the home’s location accounts for the largest portion of your home’s value. If you can picture a triangle divided into three parts, location would be the bottom largest part, followed by the middle level that would consist of:
- Size of the home
- Lot size and characteristics
- Any detached structures or exterior features
- Number of garage stalls
The top smallest portion of the triangle would include amenities plus the following factors:
- Number of bedrooms
- Number of bathrooms
- The level that the bedrooms and bathrooms are on
While finished basements can add value, the amount of value is much less than above-grade square footage.
Are online home evaluation websites accurate?
While online home evaluation websites are getting better, there is no substitute to an in-person walk-through by a licensed real estate agent or appraiser.
An in-person walk-through will always be more accurate than an algorithm.
There is just no substitute for real-life expertise when it comes to determining your home’s value.
Should I compare my home to other homes for sale to determine the value?
Homes for sale matter only to the extent that they are your competition for buyers. Instead, comparing your home to those that have recently sold will tell you what the market is willing to pay for homes that are similar to yours -- not what sellers are hoping to receive.
Pending listings -- those that have gone under contract but not yet closed -- can also offer valuable information. They are the most current gauge of the market, but you won’t always know the final sale price until it is recorded at closing. Real estate agents should be keeping an eye on current pending listings and tracking their performance for the most up-to-date information available.
Should I build in bargaining room when pricing my home?
A lot of sellers want to build in bargaining room, and while I agree that you should build in some bargaining room, there is no need to build in much. Your price is like a magnet. The closer your price is to market value, the more buyers you will attract.
If there are two homes that are worth $200,000 and one lists for $204,900 and the other at $214,900 to build in more bargaining room, which home do you think will look better online and attract more buyers?
Buyers search for homes online using minimum and maximum prices ranges. A buyer that can spend $200,000 is probably looking up to $204,900 or $210,000. By listing at $214,900, your home becomes invisible to some of the most qualified buyers.
When you pick your price, you also pick your competition. By pricing at $214,900, you are now competing against all of the other $214,900 homes. While your home may compare favorably against all other $200,000 homes, it may not compare favorably to other $214,900 homes.
If you do price your home at $214,900 and find an ill-informed buyer who is willing to overpay, their lender will not be willing to give the buyer a loan if the home does not appraise for at least the sales price. If this happens, you’ll need to either renegotiate the contract with the buyer for the appraised value or the deal could fall apart.
Should I price my home based on what I paid for it?
The price you paid for your property, whether it was one year ago or twenty years ago, has little relationship to its current market value.
While home appreciation is common, it is certainly not guaranteed.
Consider this example: What if you acquired your home through an inheritance, in which case your cost was zero. How much would you try to sell it for today? You would likely attempt to get market value even though you paid nothing for it. Regardless of their cost, homes sell for market value.
Should I expect to get the money back that I spent on improvements?
There are a variety of improvements that add value to your home, including capital improvements such as additional bathrooms or the addition of structures or systems that were not there before.
Many people expect expensive repairs like a new roof or new HVAC system to add value. However, these are considered maintenance costs, not value-added improvements. While they may improve your home’s marketability and help you sell, they do little to add additional value.
Cosmetic changes and decorating can definitely add value but are also subject to individual tastes.
Should we try a higher price for the first couple of weeks?
By overpricing at the start, you are wasting your best marketing period. The greatest interest generated in your property will come in the first couple of weeks when your listing is new and then showings typically taper off. Don’t make the mistake of overpricing your home during the period of its best activity, only to lower the price once the buyers are gone.
Overpricing your home at the start would be as foolish as a retailer marking their prices down a week after Black Friday. You can only create that demand one time.
In addition, you will have lost quite a bit of negotiating leverage that you would have had early in the process when demand was higher and activity was greater.
Should we list with the real estate agent that recommends the highest listing price?
Most sellers think their home is worth more than it is, and most real estate agents will list at the price the homeowner wants without giving any guidance.
When multiple agents are competing for the same listing, some agents choose to tell the seller an inflated price just to secure the listing.
Both of these situations are a sure recipe for disaster! An agent who gains your listing at a high price now, will simply push for price reductions later.
I believe it’s better to lose a listing by telling the truth than to gain it by overpricing. You want your real estate professional to give you honest advice. It's the only way you can make proper decisions and plans.
We can always reduce the price if our home is not selling… right?
Say you overprice your home, either to test the market or to build in bargaining room. Now, imagine that weeks pass and no one makes an offer on the home. You reduce the price to the level it should have been in the first place. Now, however, the home has been on the market for a while and the longer a home is on the market, the less perceived value it has and the harder it is to sell. If the house doesn’t sell at the new price, you may need to reduce it even more. Now, however, the listing is more stale, there are brand-new listings on the market capturing attention, and your home is becoming less desirable each day.
You will almost always net more money by pricing your home correctly at the start.
Do we need to have our home appraised before selling it?
Because your real estate agent will provide a CMA and will have the most up-to-date information on pricing trends in your market, a pre-appraisal is generally not necessary. If you have particular concerns or an unusual property, you may want to consult with an appraiser to gain his or her perspective.
How does a finished basement affect the value of my home?
While a finished basement can be a good selling feature, it doesn’t add as much to your home’s value as above-grade square footage. Generally, finished basement square footage is valued at around 30% of above-grade square footage.
Does a pool make my home worth more or less?
It depends if it is an above ground pool or an in-ground pool. Above ground pools do not really affect the value either way. In-ground pools add value to the price of a home but it also eliminates many prospective buyers that do not want a pool. Many homebuyers do not want the safety concerns of a pool or feel that a pool takes up too much precious yard space.
Can we ask more than that? We need the money
While it is very real to you, your financial situation has nothing to do with the market value of your home. If anything, a precarious financial situation and an urgent need to sell puts you in a weaker negotiating position. While you can list and refuse to negotiate, don’t expect anyone to play ball based on your personal needs.
Would you pay more for a home if you knew the seller needed the money?
What is the difference between list price and sale price?
List price is the advertised price that the seller is hoping to receive for a property. The sale price is the final price that they actually receive at closing. There can be a significant difference between listing price and sale price, depending on factors like negotiations, home repairs, seller assistance, and other adjustments.
What is a CMA?
A CMA (otherwise known as a Comparative Market Analysis) is a tool that real estate agents use to calculate a home’s value. Your home is compared to similar homes, known as comparables, that have sold in the past 6-12 months in your market.
Real estate agents will also look at homes that are currently for sale, currently pending, as well as expired or withdrawn listings that didn’t sell for whatever reason. They will also look at the supply vs the demand of the real estate market in your area, determining whether it is currently a seller’s, buyer’s, or balanced market.
What is an appraisal?
An appraisal is a certification by a licensed professional that a house is worth a certain amount based on comparable sold properties. Appraisers are not interested in looking at current market trends or homes currently for sale. The value is based only on other sold properties over the past 6-12 months.
Can I use a previous appraisal to determine the value of my home?
If the appraisal was completed more than a year ago, it has no relevance to current market conditions. In addition, if the appraisal was completed for refinancing or a home equity loan, it may not provide much information on the price a buyer would be willing to pay.
When are appraisals usually completed?
The appraisal process is usually completed after the seller and buyer have a fully executed purchase contract. The appraisal is completed by an appraiser that the buyer’s bank or mortgage lender hires. The bank wants to make sure that the home is worth at least the purchase amount before the loan process is completed.
What if the appraised value is lower than the selling price?
There are a variety of options, including the following:
- A reappraisal can be requested (only if errors are found in the appraisal).
- The seller can change the sale price to reflect the lower appraised value.
- The buyer can add additional funds to the down payment to cover the difference.
- The buyer and seller can split the difference.
- The buyer can cancel the purchase agreement based on the appraisal contingency.
What is the difference between assessed value and appraised value?
Assessed value refers to your home’s valuation for tax purposes. In some markets, the assessed value is lower than the market value. In other areas, the market value is higher than the assessed value. In most cases, the assessed value is based on historical information and may have little to do with the home’s current condition, thus assessment has little application when pricing the home.
Should I price my home based on what my insurance agent says it’s worth?
The value your insurance agent assigns to your home is based on the replacement cost needed to rebuild or repair your home in the event of damage or loss. It has little or no relationship to market value based on comparable properties.
My home is larger than surrounding homes. How will that affect the price?
This is known as the principle of regression, which means that a large home’s value may be negatively impacted by smaller homes in the same neighborhood.
My home is smaller than surrounding homes. How will that affect the price?
This is known as the principle of progression, which means that a smaller home’s value may be increased by proximity to larger homes in the surrounding area. This is where the advice “buy the smallest home in the best neighborhood you can afford” comes from.
Be sure to also check out the 3 step process to properly price your home and the 11 traps to avoid when pricing your home.